5 Challenges Your Tech Startup Will Face (and How to Overcome Them)

Technology startups face a unique set of risks and challenges that may not affect other industries. / Credit: Business team image via Shutterstock

Technology seems to be the industry of choice for many of today's aspiring business owners. It's a broad, fast-growing field that attracts investors and venture capitalists, and if you succeed, the payout potential is enormous.

The allure of launching a tech startup is easy to understand, but some entrepreneurs fail to consider the unique risks they'll face being in the competitive world of technology. Here are five challenges you'll likely come up against, and ways to overcome them:

Constant change

Rapid changes in technology, more so than in any other industry, can really throw a startup off-kilter. As many tech entrepreneurs know, there's a lot of pressure to move quickly and beat the competition to a solution. [8 Free Business Plan Templates for Startups]

"If a company isn't nimble enough, or cannot execute fast enough on an idea, the window of opportunity for your product or service may very well close before it is ready for the market," said Andrew Van Noy, CEO of e-commerce solutions provider Warp 9. "If you feel you have a solution to a problem not addressed yet on the market, don't be fooled — it won't be long before someone else does, too."

But being the first doesn't always mean you've won, Van Noy said. If a product or service doesn't yet exist, there is a steep price to pay to blaze new trails, and oftentimes, the second mover can capitalize where the first can't. To better assess where you stand, Van Noy advised tech startups to seek out feedback on their ideas, goals and path to success.

"You may have a great idea, but come back out of the clouds," he told Business News Daily. "Get feedback from friends and relatives on your idea, and take their criticism seriously. Be realistic about how much time, money and energy it will take to make your idea come to fruition. Talk to other founders and leaders and see how long, hard and expensive it was for them. There is nothing worse than seeing entrepreneurs get their dreams and savings destroyed because they thought it would be easy."

Being unable to reach your initial goal

Because technology changes so quickly, there's a strong possibility that you may not be able to complete what you initially set out to do with your startup. Instead of accepting the failure of the business or changing directions, many startup founders simply let their operations lie stagnant.

"So many startups end up in 'zombie' states," said Shawn Livermore, founder and CEO of outsourcing platform Ziptask. "The founders don't want to give up, and are embarrassed to concede defeat. So they keep the dream alive but never really complete what they originally set out to do. Large companies are not worried if one of their projects never gets completed. But in a startup, not completing something means you leave the door open in your life, and that's worse than failing."

Finishing what you start is a good rule of thumb for many situations in life, but it's especially true as a tech startup. If it seems like you're going to fail, allow yourself to do just that.

"If you fail, try again, but next time, do it faster," Livermore told Business News Daily. "Ziptask started, failed, pivoted, started again, failed, pivoted, started again, took investment, succeeded and now is growing. It took three solid efforts by an extremely determined group to get to legitimate revenue."

Partnership decisions

As a new business, partnering with another company in a related field may seem like a great way to grow. But the stakes are much higher for tech startups, whose operations can easily be ruined by hitching their wagon to a passing fad.

"The technologies that are mainstream today may be eliminated over the next few years," said Chris Miles, CEO of business software provider Miles Technologies. "I have seen many companies develop entire product lines and build services and solutions based completely on emerging or popular technologies. When those [fads] go away, everything dissolves. Then what? You have to make sound and smart decisions."

When it comes to choosing which companies to do business with, having clear policies in place regarding this issue can help you make the best decisions for your startup. Miles' company, for example, only chooses to work with larger, established companies that have a good chance of longevity and success.

"When you are building a business, it is important to focus on instituting policies that help you mitigate risks," Miles said. "As an entrepreneur, you always take risks. But with policies in place to guide decisions, you are not throwing the dice and hoping for the best."

Hiring

Hiring employees can be a nerve-wracking experience for any startup, but tech startups often hire too many people before they're really ready. Even if you have investor money behind you, stretching your resources too thin right away can quickly become a problem.

"Tech startups are fast-growing and attract massive amounts of funding, but it's hard to accommodate that growth well," said William Zhou, CEO of education technology company Vetica. "Tech startups are notorious for overscaling, or hiring too many employees prematurely. In fact, 74 percent of high-growth Internet startups fail due to premature scaling, according to the 2011 Startup Genome Report. Always hire slow and fire fast."

The other hiring issue a new tech business can face is the inability to draw top talent into a startup environment.

"Cash flow is one of the biggest problems facing any startup," said Mat Peterson, founder of app development company Shiny Things. "Larger tech companies in Silicon Valley can pay much higher salaries than a local startup can afford. Allowing your team to have freedom and creativity with their projects gives them a lot of satisfaction and makes them less likely to go [to a larger company]."

Cyberrisks

While nearly all businesses rely on the Web to some extent, a restaurant or brick-and-mortar retail store isn't going to have the same kind of cybersecurity risks as a startup whose operations are entirely online. In most cases, tech startups serve the B2B market, which means other companies are depending on yours to keep things running smoothly.

"Because tech businesses provide a product or service to help other business owners perform their operations, they are open to liabilities of omission, errors and other exposures," said Eunice Lim, sales director for Travelers insurance company. "To overcome any possible losses, you need to make sure you understand those exposures first."

Having a comprehensive firewall and antivirus software system in place will mitigate many cyberrisks, but these will only get you so far. Lim recommended training your employees in the proper protocol for handling sensitive customer and credit card information, and always making sure company data is accessed only through a secure, private Internet connection. Adding a cyber-insurance policy to your insurance program can provide protection should a data breach occur.

While tech startups may face steeper competition than startups in other industries do, as well as unique challenges, your level of dedication to your new business will ultimately determine your chances of success.

"The odds of any individual building a market-leading company from scratch is minute," said Jeremy Colless, founder of Australian equity crowdfunding platform VentureCrowd. "Being delusional will not get you there. Skill, persistence, and a bit of time and luck are needed."

Correction: An earlier version of this article referenced adding a cybersecurity clause to general liability policies. The story has been updated to reflect the need for a separate cyber-insurance policy.

Nicole Fallon

Nicole received her Bachelor's degree in Media, Culture and Communication from New York University. She began freelancing for Business News Daily in 2010 and joined the team as a staff writer three years later. She currently serves as the managing editor. Reach her by email, or follow her on Twitter.